Banks Seek Government Help to Track Money Laundering; Industry, anticorruption groups support creating a Treasury-run database of corporations and their owners

January 2018

WASHINGTON—Efforts to overhaul U.S. anti-money-laundering laws are gathering steam, as large banks, anticorruption groups and law-enforcement authorities coalesce around the idea of creating a national database of corporations and their true owners.

"We've come to see this as the right thing to do and a good thing for the banks," said Greg Baer, the president of the Clearing House, a trade group of the largest U.S. banks.

The financial industry's support for the plan, which would require new and existing corporations to register with the Treasury Department's Financial Crimes Enforcement Network, could be pivotal.

The database measure is part of a draft bill backed by Reps. Steve Pearce (R., N.M.) and Blaine Luetkemeyer (R., Mo.). The Senate Banking Committee also discussed changes to the U.S. anti-money-laundering regime on Tuesday during its first hearing of the year.

Treasury in 2016 issued a long-awaited rule mandating banks to identify the true owners of companies they take on as clients. It also urged Congress to create a national database of those owners, a step that proponents said would stymie the creation of shell companies by bad actors.

The rule goes into effect in May, giving banks a new incentive to back such a measure.

"Right now, banks are obligated to find out who owns companies…They just have to do that on their own," Mr. Baer said. "It will help banks do their due diligence more efficiently if they can check [an official] source."

Public companies have to spell out who their owners are. The legislation is an effort to catalog smaller companies to make sure regulators aren't missing a swath of firms that could be used to launder money. It would apply to U.S.-incorporated companies with 20 employees or fewer and $5 million or less in annual revenue. These firms would have to list their true owners in annual filings to FinCEN.

"I don't believe for a minute…that the biggest money laundering threat that we face is from dry cleaners and from shopkeepers," said David Burton, a senior fellow in economic policy at the conservative Heritage Foundation.

Clark Gascoigne, deputy director of the FACT Coalition, a corporate-transparency group in Washington, said the idea is to "capture the companies that were set up on Monday, launder the money on Tuesday and shut down by Wednesday."

The bill specifies funding for the effort would be capped at $40 million.

"Initially, it would be a huge undertaking," said Ross Delston, a Washington-based anti-money-laundering consultant. "There would be a huge initial bump in the workload that probably would take one to three years of getting all the current companies registered."

aPart of the difficulty for FinCEN will be to verify the information it receives from the companies.

"What's the compliance mechanism?" asked Mr. Delston. "How do you know if existing companies have filed?"

Parties that support the database include groups representing district attorneys, certain small businesses and law enforcement, as well as rights groups such as Oxfam and Global Witness.

The legislation from Reps. Pearce and Luetkemeyer also contains a number of other measures that would lighten the regulatory load on banks, including many that were advanced by the Clearing House in a report issued last year.

Some of the measures could prove too controversial to garner bipartisan support. For instance, the bill includes a provision that would create a system giving banks the freedom to experiment with new anti-money-laundering technologies, to be approved on a case-by-case basis.

As written, it would also keep nonfederal officials out of the loop.

"[We are] concerned that state and local law enforcement don't currently have access to information in the bill," Mr. Gascoigne said.

"There's also a growing concern around the use of those shell companies for human-trafficking networks," he said. "It's like playing whack-a-mole and they can't actually follow the money trail."

Meanwhile, some members of law enforcement balk at a measure that would increase the threshold at which banks must report transactions with FinCEN to $30,000 from $10,000.

"That's intelligence that the FBI is going to lose," said Dennis Lormel, former head of the Federal Bureau of Investigation's financial crimes program. "In today's environment, with the homegrown violent extremists, you're dealing with a lower amount of money" being exchanged in criminal transactions, he added.

Banks argue that the quantity of data they will have to send to FinCEN is keeping them from developing more sophisticated and effective tools to target money laundering.

"Certainly, to law enforcement a small-dollar SAR [suspicious-activity report] might be the proverbial last piece in the puzzle in an investigation, but they aren't seeing the opportunity cost of that SAR," Mr. Baer said. "It's a shame that we actually have to shield banks from criticism for actually catching more bad guys."

Additionally, privacy advocates have criticized a provision that would vastly expand the types of suspected criminal activities allowing banks to share suspicious-transactions information with each other and with regulators. "What you don't want is a situation where the [government] is able to get private and sensitive information without having to go through" a warrant or court order, said Neema Singh Guliani, a legislative counsel with the American Civil Liberties Union.